Myopia or Hyperopia?

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David Brooks wrote his NYTimes column today under the headline, Perverse Cosmic Myopia. He was criticizing world leaders for neglecting to agree on effective immediate actions to cope with the global financial crisis while focusing on future systemic remedies

You’d think if some tiger were lunging at your neck, your attention would be riveted on the tiger. But that’s apparently not how it works in the age of global A.D.D. As a tiger sinks its teeth into the world’s neck, we focus on the dust bunnies under the bed and the floorboards that need replacing on the deck. We live in the world of Perverse Cosmic Myopia, an inability to focus attention on the most perilous matter at hand… In times like these, you’d expect prudent leaders to prepare for the worst. After all, the pessimists have recently been vindicated by events. But that’s apparently too painful to think about. In normal times, leaders like to focus on the short term at the expense of the long term. But now the short term is really confusing, so leaders take refuge in projects that are years or decades away.

Brooks needs to consult his opthamalogist to get his terms straight. People with myopia see close objects clearly but distant objects are blurred. The opposite, hyperopia, fits his article. People see the distant clearly but blur the close-at-hand. What is needed here are leaders with perfect vision, some thing rare in those who chose politics as their livelihood.

Business cycles are generally accepted as inherent in the current capitalist political economy, although the recent long period of relatively uninterrupted growth fooled many economists into thinking that US monetary and fiscal policy had reined in the ups and downs for good. So much for that notion. Economies, especially very large, highly-interconnected ones, are complex systems. Cyclical behavior is typical of complexity. Complex systems move in some relatively stable region as they adapt to changing conditions. As long as they remain in this region, they can continue to deliver whatever functions we want. This is what sustainability means in general. But they can withstand only so much stress before jumping into a new region where they fail to deliver the original functionality or may even collapse entirely.

Economists are seeking causes for the recent huge swing in functionality—the loss of capacity for providing employment and the ability to invest and operate businesses, among others. Over-leveraging is the technical term used to point to the use of other people’s money by financial operators to oil the machine they run to increase their own wealth. It’s a kind of legal Ponzi scheme. Systems dynamics has another model for this situation, called the “tragedy of the commons” after a seminal paper by Garrett Hardin with that title. Hardin argued that self-interest drives people to use more and more of some common resource until the resource is so weakened or damaged that the whole system collapses. Hardin and others first invoked this model to explain why fisheries and forests ecologies collapse, but it is just as valid for any complex system based on a limited resource.

The limited resource in the financial system is capital. Leveraging is a way to employ fungible capital one does not own to obtain private wealth, part of which will be used to pay off the loans. Consumer credit is another form of leveraging, using a bank’s money to buy goods and services today with the expectation of repaying the loans tomorrow. This system can work as long as the users of the resource moderate their usage such that the resource does not dry up. But, as Hardin argues, it is human nature to use more and more of the limited resource as long as the returns are proportional to the utilization. At some point in the current crisis, the amount of capital in the whole system, instead of growing, suddenly began to disappear, and the system stopped delivering its normal everyday functions: providing the goods and services people require for their livelihood.

Hardin and others argue that such conditions are inherent to systems with limited resources whether they are natural or man-made. The only way to avoid the eventual collapse is to regulate behavior to maintain the resiliency of the system. Self-control may sound good, but it is the lack of self-control that causes collapse in the first place. Greed is nothing but the lack of self-control in the face of limited resources.

Some sort of superimposed management structure is always required to keep the system healthy. The structure can be created by the players (with difficulty) or by some authoritative institution, but, in either case, an enforcement mechanism with sufficient teeth must be put in place. Failure to understand the systemic causes of the collapse, not simply the trigger events, leads to short-term solutions and the likelihood of further (and perhaps more serious) collapse in the future leaves in place. My favorite Gregory Bateson phrase fits perfectly, “Lack of systemic wisdom is always punished.” Self-control or self-regulation is an ideological framework, based on some untested notion whereas the systems model of the tragedy of the commons has all too much real evidence behind it.

Brooks’ invocation of myopia is itself myopic. Both myopia or hyperopia should be corrected in the leaders’ spectacles. What world leaders must do is attack both aspects of the problem at the same time. Leaders must be able to see the handwriting on the wall very clearly and read the warning signs hiding behind the horizon.

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